Diversified Energy: Operational prowess, asset sale and “highly value accretive” share buyback – Peel Hunt’s views (LON:DEC)

Diversified Energy Company (LON:DEC) is the topic of conversation after Matthew Cooper, Research Analyst Oil & Gas at Peel Hunt, completed a recent site visit to Diversified’s US operations and headquarters. DirectorsTalk asked Matt for his high-level impressions on the business, and views on the recent share buyback and US$40m non-core asset sale. 

  1. What impressed you the most during the site visit?

We were highly impressed with the competence and enthusiasm of all the Diversified employees we met. From C-Suite to well operator, all were extremely motivated  to maximise value for the company and its shareholders (which many employees are).

  1. How does Diversified’s Smarter Asset Management (SAM) program maximise value from its asset base?

SAM comprises low cost and quick return projects. Projects we saw included digitalisation (allows wells to be adjusted/monitored remotely) and workovers to optimise production (c.340 conducted in Central Region in 2022 with average payback of two months).

  1. Is Diversified on track to meet Greenhouse gas (GHG) emission targets?

Diversified appears well on track to meet its GHG reduction targets as at 2022 results the company announced that group methane emissions intensity has already been reduced 25% since 2020 (the target is a 50% reduction by 2030). In the field we witnessed first-hand a number of key projects that have helped achieve this, including handheld device well monitoring and the conversion of pneumatic valves from natural gas to compressed air.

  1. In what way do undeveloped locations, act as material catalysts for the business?  

They are organic catalysts which can add material value to the business and may be monetised via sales or third-party drilling.

  1. With that in mind, what’s your view on the US$40m non-core asset sale?

The US$40m sale looks like a shrewd piece of business, disposing of higher cost and non-operated wells, and achieved a c.4.0x NTM cashflow price multiple vs the 1.4-3.5x multiples Diversified paid for its Oklahoma and Texas acquisitions.

  1. Finally, what’s your view on Diversified’s recent share buyback?  

Given the current disconnect between the share price and the intrinsic value of the company, in our view the share buyback programme is a very sensible use of capital which will be highly value accretive to shareholders.

Diversified Energy Company PLC (LON:DEC) stands as a pioneer in the realm of independent energy companies. With our unwavering commitment to producing, marketing, and transporting natural gas and associated liquids, we have cemented our position as a leader in the industry. Our strategically located onshore upstream and midstream assets, predominantly situated within the Appalachian and Central Regions of the United States, serve as the backbone of our operations.

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